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Michael SpenceISEO2009
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Sustained High Growth DynamicsEngagement with the global economyHigh levels of public and private investmentResource mobility
the private sector competitive dynamics and structural change to work
the avoidance of policies that interfere with these productivity increasing micro-economics.
Stable financial and macro-economic environment Inclusiveness
protecting those adversely by the competitive micro dynamics, ex ante equality of opportunity and ex post management of the extent of income and wealth
differentials.Building over time an increasingly effective governmentPolitical leadership in representing inclusive values, choosing a strategic
framework, establishing a vision, building consensus among key stakeholders and making key intertemporal investment choices appears to be essential.
2
Post Crisis Prospects
Global economy openness Advanced country growth Re-regulation of the advanced country financial systems Transmission mechanisms How to think about developing country financial sectors Transmission mechanisms Circuit breakers Global aggregate demand and the US consumer/saver The IMF and volatile capital flows Resilience and the capacity to withstand shocks The defenseless countries in the crisis Climate Change Negotiations
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Bad Ideas: Part 2 Assume (and plan accordingly) that the crisis is a mean reverting event and that
we will return to a pre-crisis pattern of growth, capital costs, trade and capital flows in the global economy.
Abandon the global economy market driven growth strategy because of the advanced countries financial sector failures even though the medium term returns in terms of growth may be lower.
Continue with the energy subsidies on the assumption that with the crisis induced decline of commodity price, the public sector costs are not as high.
Ignore the externalities from the financial system (functioning and stability) to the rest of the economy
Focus macro and monetary policy on real variables like inflation, employment, growth ignoring potential sources of instability from the balance sheet (asset prices, leverage, derivatives expose)
Buy assets whose risk characteristics are hard to understand. The high returns are likely to be accompanied by risk even though the latter may be hidden from view.
Ignore the distributional lessons of the commodity price spike and the crisis. Pre-built and quickly implementable transfer programs are of great value, especially if they have attractive incentive properties with respect to employment.
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5
6
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IMF Growth Forecasts Declined Frequently Over the Last 8 Months: Here are the Latest Two
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9
Indian Rupee to Dollar
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11
Brazil SA Rand
Turkey Lira
Russia ruble
China Yuan to Dollar
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China Yuan to Dollar
13
40
50
60
70
80
90
100
110
120
Source: Bloomberg
Jun 97 October 22, 2003
Korean Won
Japanese Yen
Taiwan $
Thai Baht
Chinese Renminbi
This May Look Familiar: China During Currency Crisis 1997-1998
China has appreciated against the entire developing world and the pound. Flat against the dollar and slightly depreciated relative to the euro
China as the Asia IMF: Use of Reserves in East Asia
$95B of swap facilities to stabilize net capital flows of neighbors
Continuing distrust of IMF in Asia – legacy of 97-98 crisis
Stabilizing trading partner exchange rates is in their self-interest
Concern about dollar, US fiscal deficits and debt
Zhou Xiaochuan – super sovereign currency proposal in March
15
China Fiscal Capacity
China Foreign Debt
Reserves
Chinese reserve accumulation Mostly reverse net inbound private capital flows Not mainly trade surpluses
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The Climate Change Challenge to Growth
G20 90% of global GDP 66% of population
In 50 years they will all be advanced countries: with consumption, energy use and carbon emission patterns like OECD
The question is can the world hit safe CO2 targets in 50-75 years with this growth.
19
0
5
10
15
20
25W
orl
d
Safe
Le
vel
Un
ite
d S
tate
s
Can
ada
Ru
ssia
n F
ed
era
tio
n
Un
ite
d K
ingd
om
Ge
rman
y
Ne
the
rlan
ds
Ital
y
Spai
n
Fran
ce
Ch
ina
Egyp
t
Bra
zil
Vie
tnam
Ind
ia
Nig
eri
a
Ban
glad
esh
Tan
zan
ia
Eth
iop
ia
Tons per year
CO2 EMISSIONS PER CAPITA
20
Population (millions)
2009 Per capita emisions (tons)
US, Canada and Australia 330 20Other Advanced 670 11High Growth Developing 3356 4.2Lower Growth Developing 2178 1
21
0.000
5.000
10.000
15.000
20.000
25.00020
0920
1220
1520
1820
2120
2420
2720
3020
3320
3620
3920
4220
4520
4820
5120
5420
57
Per Capita Emissions with No Mitigation Effort
US
Other Advanced
Growing developing
Other developing
World
22
0.00
10.00
20.00
30.00
40.00
50.00
60.00
2009
2013
2017
2021
2025
2029
2033
2037
2041
2045
2049
2053
2057
Total Global Emissions (Gigatons)
Total Global Emissions (Gigatons)
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0.0
5.0
10.0
15.0
20.0
25.0
2009
2012
2015
2018
2021
2024
2027
2030
2033
2036
2039
2042
2045
2048
2051
2054
2057
Per
capita
emissions
(
tons)
Year
PER CAPITA EMISSIONS ON PATH TO SAFE TARGET
US and Canada
Other Advanced
Growing Developing
Other Developing
Global Everage
24
D(t) is the per capital emissions in the high growth developing countries without mitigation
E(t) is the “European” emissions
It is assumed that the mitigated emissions in the developing countries are M(t) as follows
T(t) is between one and zero,
is one at t=2009 and declines to 0 at t=2059.
Recall that D(t) converges to E(0) at the end of the period
𝑴ሺ𝒕ሻ= 𝑫ሺ𝒕ሻ× {𝑬ሺ𝒕ሻ𝑬ሺ𝟎ሻ× [𝟏 − 𝑻ሺ𝒕ሻ]+ 𝑻ሺ𝒕ሻ},
25
0
0.2
0.4
0.6
0.8
1
1.220
0920
1120
1320
1520
1720
1920
2120
2320
2520
2720
2920
3120
3320
3520
3720
3920
4120
4320
4520
4720
4920
5120
5320
5520
57
Transfer Lags for Advanced Country Technology
26
0.00
2.00
4.00
6.00
8.00
10.00
12.00
2009
2011
2013
2015
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043
2045
2047
2049
2051
2053
2055
2057
2059
Per
capita
emissions
(
tons)
High Growth Developing Country Emissions with Various Transfer Lags
27
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.0020
0920
1220
1520
1820
2120
2420
2720
3020
3320
3620
3920
4220
4520
4820
5120
5420
57
Gigatons
CO2 Output in Gigatons with Effective Mitigation
US
Other Advanced
Growing Developing
Other Developing
Global Total
28
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
2009
2012
2015
2018
2021
2024
2027
2030
2033
2036
2039
2042
2045
2048
2051
2054
2057
Percentage
SHARES OF TOTAL CO2 OUTPUT
US CANADA SHARE
OTHER ADVANCED SHARE
GROWING DEVELOPING SHARE
OTHER DEVELOPING SHARE
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Implementation Mechanisms
Global CCTS Advanced Country CCTS with cross border and graduation criterion Advanced country targets with cross border and graduation criterion
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Global CCTS
𝑴= 𝒕𝒉𝒆 𝒕𝒐𝒕𝒂𝒍 𝒈𝒍𝒐𝒃𝒂𝒍 𝒄𝒂𝒓𝒃𝒐𝒏 𝒄𝒓𝒆𝒅𝒊𝒕𝒔 𝒎𝒊 = 𝒕𝒉𝒆 𝒂𝒍𝒍𝒐𝒄𝒂𝒕𝒊𝒐𝒏 𝒐𝒇 𝒄𝒓𝒆𝒅𝒊𝒕𝒔 𝒕𝒐 𝒄𝒐𝒖𝒏𝒕𝒓𝒚 𝒊 𝒆𝒊 = 𝒕𝒉𝒆 𝒆𝒎𝒊𝒔𝒔𝒊𝒐𝒏𝒔 𝒐𝒇 𝒄𝒐𝒖𝒏𝒕𝒓𝒚 𝒊 𝒄𝒊(𝒆𝒊) = 𝒕𝒉𝒆 𝒄𝒐𝒔𝒕 𝒇𝒖𝒏𝒄𝒕𝒊𝒐𝒏 𝒇𝒐𝒓 𝒆𝒎𝒊𝒔𝒔𝒊𝒐𝒏𝒔 𝒇𝒐𝒓 𝒄𝒐𝒖𝒏𝒕𝒓𝒚 𝒊 𝒙𝒊 = 𝒑𝒖𝒓𝒄𝒉𝒂𝒔𝒆𝒔 𝒐𝒇 𝒄𝒓𝒆𝒅𝒊𝒕𝒔 𝒃𝒚 𝒄𝒐𝒖𝒏𝒕𝒓𝒚 𝒊 𝒑= 𝒕𝒉𝒆 𝒑𝒓𝒊𝒄𝒆 𝒐𝒇 𝒄𝒂𝒓𝒃𝒐𝒏
𝒙𝒊𝒊 = 𝟎
𝒙𝒊 = 𝒆𝒊 − 𝒎𝒊 31
𝒆𝒊𝒊 = 𝒎𝒊𝒊 = 𝑴
𝒄𝒊ሺ𝒆𝒊ሻ+ 𝒑(𝒆𝒊 − 𝒎𝒊)
𝒄𝒊′(𝒆𝒊) + 𝒑= 𝟎
𝒎𝒋 = 𝒄𝒋(𝒆𝒋)𝒑 + 𝒆𝒋 32
Advanced Country CCTS
𝒏𝒊𝒋 = 𝒕𝒉𝒆 𝒎𝒊𝒕𝒊𝒈𝒂𝒕𝒊𝒐𝒏 𝒄𝒐𝒏𝒅𝒖𝒄𝒕𝒆𝒅 𝒃𝒚 𝒂𝒅𝒗𝒂𝒏𝒄𝒆𝒅 𝒄𝒐𝒖𝒏𝒕𝒓𝒚 𝒊 𝒊𝒏 𝒅𝒆𝒗𝒆𝒍𝒐𝒑𝒊𝒏𝒈 𝒄𝒐𝒖𝒏𝒕𝒓𝒚 𝒋
𝑵𝒋 = 𝒏𝒊𝒋 = 𝒕𝒉𝒆 𝒕𝒐𝒕𝒂𝒍 𝒎𝒊𝒕𝒊𝒈𝒂𝒕𝒊𝒐𝒏 𝒊𝒏 𝒅𝒆𝒗𝒆𝒍𝒐𝒑𝒊𝒏𝒈 𝒄𝒐𝒖𝒏𝒕𝒓𝒚 𝒋𝒊𝝐𝑨
𝒆𝒋 = 𝒂𝒋− 𝑵𝒋
𝒙𝒊 = 𝒆𝒊 − 𝒏𝒊𝒋𝒋𝝐𝑫 − 𝒎𝒊 33
𝒄𝒊′ሺ𝒆𝒊ሻ+ 𝒑= 𝟎
For cross border activity in developing country j, the benefit of an additional unit of
mitigation is p, because of the credit and the reduce purchases. The cost is −𝒄𝒋′(𝒂𝒋− 𝑵𝒋)
Thus when all the potential cross border mitigation that reduces advanced country costs has
been undertaken, 𝒄𝒋′൫𝒂𝒋− 𝑵𝒋൯+ 𝒑= 𝟎
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If E is the total advanced country emissions, N is total mitigation in all developing countries
and M is the total carbon credits, then because net purchases have to sum to zero, it follows
that
𝑬= 𝑴+ 𝑵
That is if S=E0-E, the actual mitigation in advanced countries, then with cross border options
𝑺+ 𝑵= 𝑬𝟎 − 𝑴
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Advanced Country Targets
𝒙𝒊 = 𝒆𝒊 − 𝒏𝒊𝒋𝒋𝝐𝑫 − 𝒎𝒊 Becomes
𝑻𝒊 = 𝒆𝒊 − 𝒏𝒊𝒋𝒋𝝐𝑫
36